27th Mar 2024 11:26
(Alliance News) - Analysts cut forecasts for S4 Capital PLC after the advertising agency warned of continuing challenging economic conditions and soft client spend.
Shares in S4 Capital, run by Martin Sorrell, slumped 12% to 39.09 pence in London on Wednesday morning.
"Challenging macroeconomic conditions and client caution [are] likely to persist, despite the prospect of lower interest rates," S4 Capital said.
The company noted the comparatives with 2023 will be difficult in the first-half but will be easier in the second-half.
Peel Hunt analyst Jessica Pok said the outlook is "disappointing, with lack of green shoots in the near term. This contrasts with peers, which are slightly more optimistic."
The downbeat outlook came as S4 Capital released results for 2023 which it said were in line with revised expectations.
The pretax loss in 2023 was GBP13.9 million narrowed from GBP159.7 million the year before, while the adjusted operating profit fell 28% to GBP82.0 million from GBP114.1 million.
Revenue fell 5.4% to GBP1.01 billion from GBP1.07 billion, or by 7.8% on a like-for-like basis. Billings eased 1.1% to GBP1.87 billion from GBP1.89 billion.
S4 Capital said this primarily reflected challenging macroeconomic conditions compared to 2022.
It also reflected cautious spending from clients, particularly those in the technology sector and by smaller client relationships and regional and local clients, along with a difficult year for new business and a lower seasonal uplift in the fourth quarter.
Fiona Orford-Williams, director of TMT at Edison Group said: "S4 Capital faced a difficult trading background in 2023 and this is reflected in the financial performance, which had been well flagged in previous trading updates."
"The outlook is similarly downbeat, with 2024 net revenue guided to be lower on a like-for-like basis."
"This assumes that the demand from the technology sector clients will remain subdued and that the larger scale transformation projects will continue to be slow to cross the line."
She said the better news is that the balance sheet is under control, with no requirement for banking renegotiations short-term.
"S4 is also holding out the prospect of starting to pay a dividend at the half-year to sit alongside the ongoing share buyback," she added.
Jefferies said the guidance for 2024 implied an 11% downgrade to consensus forecasts for operating earnings before interest, tax, depreciation and amortisation.
Jessica Pok at Peel Hunt cut her 2024 revenue and Ebitda forecasts by 6% and 13% respectively.
"Given the ongoing challenges, we reduce our target price from 55p to 45p and maintain our hold rating," she added.
"While cost-cutting efforts should help this year, we do not expect the top line to improve until the second half. Guidance contrasts with peers, which on average are suggesting a better outlook, with a small amount of organic growth for FY24," she pointed out.
Jefferies has a 'buy' rating and 70p per share price target.
By Jeremy Cutler, Alliance News reporter
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